The Golden Constant

SINCE STOCK-MARKET BULLS never read history (meaning anything from
the day before yesterday and least of all the pink pages' price/earnings column
today), the library shelves marked "332" are typically left free for bears
and gold investors to roam.

Given how long the stock-bull of 1982-2000 ran, you can see why. During that
time gold lost three-quarters of
its purchasing power. Only the grand sweep of history has proved that the glass
is neither half-empty or full, but shattered, as the much-fabled "gold bug" always
believed.

"Gold has two interesting properties: it is cherished and it is indestructible.
It is never cast away and it never diminishes, except by outright loss..."

So wrote Professor Roy Jastram in The
Golden Constant (John Wiley & Sons, 1977). Alongside Peter
Bernstein's The Power of Gold and H.W.Brands' The
Age of Gold - but swapping their ripping yarns for dry, scholarly
tables of grain prices from the 18th century - it's one of the very few
books to acknowledge what die-hard gold investors feel so sure to be true:

Gold is much more than mere metal. It's history itself.

"[Gold] can be melted down, but it never changes its chemistry or weight in
the process. The ring worn today may contain particles mined in the time of
the Pharaohs. In this sense it is also a constant."

It's not something you can say of many other investments. Atomic weight 79;
melting point 1064°C at sea level; cooled density 19.25 grams per cubic
centimetre...gold's got everything a collateralized debt obligation has not.
Time cannot dull or change it. Debt default can't diminish its value (provided
you own it, securely, outright of course). And as Jastram's detailed study
of four centuries shows, gold's value, like its nature, also displays something
of a constant - constant across the long term at least - as measured against
wholesale prices.

Trouble is, as Marc Faber of the Gloom, Boom & Doom Report reminded
us late in 2008 - just as gold was sinking alongside everything else - "Gold
has kept its purchasing power over the course of history...[but] the problem
is that the owners of the gold changed over time."

How long can you wait for your wealth-store to return to full value? Or as
Faber put it, "When Timur sacked Aleppo and Damascus in 1400, it didn't help
to have your savings in gold. You lost your life and your gold."

Tamberlaine's Mongol heirs soon enough lost that gold, too. But amid such
cataclysms, Jastram saw instead what he called "The Attila Effect" - the plain
fact that, as Jill Leyland explains in her additions to the new, re-issued
and updated text of The
Golden Constant, "Men and women have turned to gold in times of distress,
whether political, economic or personal..."

"The Latifundia passed gold bars secretly to their heirs," wrote Jastram 32
years ago, "who thus survived barbarian invasions to become nobility under
the Merovingian kings of the fourth century...Austrian refugees, escaping Hitler's
storm troopers, often owed their survival in a new country to the gold and
jewels they could carry on their persons...The French peasant was astute when
he buried his coins on the threat of invasion and pillage..."

Through such crises as the French and Bolshevik Revolutions, as well as Hungary's
post-war hyperinflation - worse even than Weimar Germany's one trillion per
cent on some accounts - gold retained its ability to raise cash, if not act
as payment itself, for those lucky few who'd chosen to hoard it ahead of the
need.

Nor does history require "extreme episodes", as Leyland writes in the new
2009 edition, "to demonstrate the value of gold in a crisis..."

Jastram's study famously split the history of gold's purchasing power into
inflation, deflation, and the rest. Since gold was usually money during the
first 350 years of his scope, it also acted quite oddly to our 21st century
view:

Gold's value rose during deflation, but fell during inflation. Whereas today,
of course, everyone expects gold to rise when the cost of living increases,
but fall when the threat of inflation recedes. Which may or may not be wrong,
but the first post-Gold Standard inflation said otherwise, and it most likely
won't matter given the volume of faith this very modern idea now stores.

Hence Leyland's labels for her post-Jastram charts (the thirty years from
1977), which first concur with but tweaking his framework ("High Inflation:
1970-1980"; "Disinflation: 1980-2000"). To fit non-money gold's four-fold increase
so far this decade, however, a whole new category's needed - "2000-2007: Inflation
fears revived".

And the future? Inflationary fears will be revived by the price of the new Golden
Constant, costing $110 in the US, or a shocking £79.95
in the UK...equal to a Dollar exchange rate of just $1.37. Yet
this is a scholarly tome, and even corduroy jackets aren't cheap. Second-hand
stores, meantime, are still charging $181 or more for the 1978 hardback
(worse yet again in the UK, priced at £157.98 with a quarter-century-busting
$1.14 on cable. How's that for the grand sweep of history!).

If you or the gold bug in your life needs reassurance this winter that, in
the long-run at least, gold's constant purchasing power is as rare and precious
as its substance, you could do much worse than treat them for Christmas. Just
don't expect to see much of him (or less likely, her) outside your library
on Boxing Day.

Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the
secure, low-cost gold and silver exchange for private investors. It enables
you to buy and sell professional-grade bullion at live prices online, storing
your physical property in market-accredited, non-bank vaults in London, New
York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
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BullionVault is a
full member of professional trade body the London Bullion Market Association
(LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.